Agency workers

Tax law position

In a typical temping agency situation, an agency will supply you to an ‘end client’. You will usually perform tasks under the day-to-day supervision of someone at the end client location but will send time sheets to the work agency, who will pay you.

Technically, you are usually neither an employee of the end client nor of the agency, however under a special tax law rule, the temping agency is usually deemed to be your employer and is responsible for deducting income tax and National Insurance contributions (NIC) under pay as you earn (PAYE) from the salary paid to you. They must also pay employer National Insurance. This is a cost to the temping agency, but it is usually covered in the fee that is charged to the end client by the agency.

The tax rules say that the only time a temping agency can escape operating PAYE is where the worker is an employee of someone else in the supply chain (for example an umbrella company – see below) or is under NO supervision, direction or control (or the right thereof) by any party as to the manner in which they undertake their work. This would be quite rare. 

This test applies to agency workers working in the construction industry even though they often have their taxes deducted at source anyway (under the construction industry scheme (CIS)). Only if a worker is not caught under the supervision, direction or control test can an agency operate CIS rather than PAYE.

You can find HMRC’s guidance on supervision, direction or control on GOV.UK. Temping agencies are expected to report any payments made where they do not operate PAYE to HMRC. They also need to provide details of the workers and why PAYE was not used.

You can read more about the PAYE obligations of agencies on GOV.UK.

Umbrella companies

Agencies specialise in finding people work assignments, but they often don’t want to do all the HR/payroll administration for those on their books, so they can sometimes outsource it to umbrella companies (‘umbrellas’). Where this happens, an agency will recommend or send you to an umbrella company from their Preferred Supplier List, who will usually take you on as their own employee. 

A good agency should make sure any umbrella company they are recommending or sending you to meets all its legal responsibilities. They should also make sure they hand over sufficient funds to cover all the costs that the umbrella company will now have in respect of you. This includes your gross pay rate plus all of the costs of employment (for example holiday pay, employers National Insurance, auto enrolment costs) and the margin. These things together make the ‘umbrella company or assignment rate’ (the rate paid by the agency to the umbrella company). This money becomes the umbrella company’s income, from which they will then pay you your wage. It is important that you are clear on what rate your agency is quoting you to work through an umbrella – it should be the uplifted umbrella company or assignment rate. 

HMRC have published some guidance on GOV.UK aimed at helping agencies that hand workers over to umbrella companies understand their legal responsibilities and keep their supply chain compliant. Although the guidance has been written for agencies, workers should find it helpful too as it shines a light on the different relationships and obligations that exist between agencies and umbrella companies. 

From 6 April 2026, agencies may be jointly and severally liable for any unpaid PAYE and National Insurance tax debts incurred by non-compliant umbrella companies in the supply chain, so we expect agencies to take more care over the umbrella companies that they work with.

See our dedicated page for more information on umbrella companies. 

Travel expenses

You may have heard that you can get tax relief for the costs of traveling to a temporary workplace, as set out in the general travel expense rules on our page employment expenses: travel. However, even though agency workers may work on lots of different ‘temporary’ engagements and may incur substantial travel costs in getting to their various work locations, HMRC say (in their Employment Income Manual) that they are not normally entitled to tax relief on the travel and subsistence expenses they incur. As we explain on our umbrella company page, this was one of the reasons for the emergence of umbrella companies in the temping industry.

Travel expenses for agency workers are usually eligible for tax relief if they are incurred while working (as opposed to getting to work) and include:

• Trips from your assignment office or other work location to visit a customer or other workplace, and can also include travel directly from your home to visit a customer or to another workplace (unless the journey is practically the same as the journey from your home to your normal place of work, for example, because the customer lives near your office).
• Travel expenses of those who have a 'travelling appointment' (that is, where the duties themselves inherently involve travelling) such as a delivery driver or meter reader, are also allowable. A person who holds a travelling appointment can get relief for all their travelling expenses (even where the journey starts from home!). Where he or she has to attend an office or depot at the start and end of the day to report in or receive instructions say, travel between there and home is not allowable.
• Although not ‘travelling appointments’ as such, HMRC also accept that travel expenses of agency workers who undertake a number of different jobs for an end client on the same day are allowable. This rule is intended to cover people such as home care nurses or domestic cleaners. In these cases, HMRC say that they will accept that the cost of travel between different jobs on the same day is allowable, however they will not accept a deduction for the cost of travel from home to the first job of the day or to home from the last job of the day. (Note there has previously been a case where HMRC’s stance on this has been called into question. There is more information in an article on the Accountingweb website.)
• Following on from this, HMRC also accept that when an agency worker incurs expenses in travelling between the premises of two or more end clients in the course of a day, the expenses of travelling from one to the other are allowable provided that the end clients were all obtained through the same agency, and the worker starts and finishes the day at his or her own home.

We provide further help and guidance on claiming tax relief on expenses, including an annotated example of form P87 (the form you use to claim them), on our page Tax relief for employment expenses. 

Tips on managing your tax position

Due to the way the system works, PAYE may not always operate smoothly for agency workers who change temping agencies frequently.

However, there are a number of simple things that you can do to help ensure PAYE operates as smoothly as possible throughout the year:

• If you have decided to finish with an agency, do not just assume that they will know to close down your payroll record once your last assignment has finished. Make sure you inform them you are leaving and request your P45. Unless you do this, the agency may consider that you are available for work and will keep you on ‘the books’ until they carry out a database cleansing exercise. This means 1) that you will not be able to provide your new employer with a P45, meaning an emergency tax code will need to be used and/or that 2) HMRC will have a ‘live’ employment record for you, meaning that they may consider a 20% flat rate deduction appropriate for your new job.
• On the other hand, if you have not worked for an agency for a while, but don’t want your P45 – you should keep in touch with the agency, as if you don’t make contact for some time, then the agency may issue a P45 in line with HMRC’s guidance on GOV.UK that unless an ‘irregular payment’ indicator is set on an employer’s payroll system for a particular employee, there will be an automatic cessation of the individual’s employment record should the employer stop sending payroll information for a period of time.
• Sometimes the issue of a P45 by a former agency can be delayed (often due to large numbers of workers coming and going). It may be useful to know that by law, you must be issued with a P45 as soon as possible once you have finished your job. P45s may now also be issued electronically (for example as an email attachment) – hopefully making it easier for you to get it.
• When you receive it, keep your P45 somewhere safe so you are able to provide it to your new employer – this may sound obvious, but please be aware that it is not possible for employers to issue duplicate P45s in the event that the original is lost or destroyed.
• Where you do not provide a P45 or a starter checklist, emergency tax will likely take the form of a flat rate 20% deduction (code ‘0T’ – meaning you have no personal allowance allocated to you), even if you only have one job; however, this can be displaced by providing your P45 or a starter checklist to your new employer.
• If you are on the books of two agencies, consider if you can split your personal allowance (we explain more about this in our guidance on having multiple jobs).

Employment law position

In terms of employment law (which is a bit different from tax law) agency workers are usually ‘workers’ for employment law purposes (the category that falls somewhere between employee and self-employed) and as such are entitled to basic protections, such as being paid at least the national minimum wage (NMW) and working time entitlements such as paid annual leave).

You can find information on your other rights as an agency worker on GOV.UK.

Under the Agency Workers Regulations (AWR), you are also allowed to use any shared facilities (for example, a staff canteen or childcare) from the first day you work in an assigned location. After 12 weeks’ continuous employment in the same role, you should get the same terms and conditions as permanent employees, including pay, working time, rest periods, night work, breaks and annual leave.

You can find out more about the Agency Workers Regulations on GOV.UK. There are rules in place that aim to stop businesses from no longer using agency workers as they get near 12 weeks of continuous work. If you think you have been unfairly treated, you should contact Acas on 0300 123 1100 (Text Relay 18001 0300 123 1100). There used to be an exemption from the 12-week rule where the agency worker was on a 'pay between assignments' contract, however from April 2020 this is no longer allowed.

Hybrid model

A ‘self-employed’ arrangement is being used in the temporary worker industry that may affect some agency workers. The arrangement, sometimes called the contract for services, elective deduction or hybrid model sees you being treated as an employee for tax purposes (so that PAYE is operated as is required under the special tax law rule described above), but being treated as self-employed for all other purposes. 

This arrangement exploits the fact that employment law and tax law are different. In employment law you have three categories of person – employee, self-employed or 'worker'. In tax law you only have employed and self-employed. Usually, people have the same status for both employment law and tax law, however this is not always the case.

Self-employed people do not have the rights and protections that ‘workers’ and ‘employees’ have under employment law. However, the law looks behind labels and paperwork to the facts of the arrangement and as explained above, agency workers are usually ‘workers’ and are very unlikely to be genuinely self-employed for employment law purposes. 

Putting agency workers in these self-employed arrangements is an artificial use of the status distinction. It may save the agency money, however, is unlikely to benefit you in any way at all (in particular, your key rights like minimum wage, holiday pay and auto enrolment may be bypassed). 

As such, you should think very carefully about accepting such terms and conditions. If you are already in such arrangements, you may wish to read our dedicated page on the Elective deduction model for help on what to do. See also Problems with agencies, below. 

Paperwork you should receive

If you are taken on by a temping agency you will be entitled to a written statement of employment particulars on or before your first day. In addition, agencies are required to provide new agency workers with a document known as a key information document prior to signing them up. This is intended to help you understand how much you will be paid (once all the fees and deductions in the supply chain have been taken into account) and by whom (for example, an umbrella company) – so that you can make an informed decision about whether to take the work. There is basic guidance on key information documents on GOV.UK. You can also find more detailed information on GOV.UK.

Problems with agencies

If you have a problem with a temping agency, then you can complain to the Fair Work Agency (FWA), who have recently taken over this role from the Employment Agencies Standards Inspectorate (EAS). The FWA makes sure agencies are complying with the Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (as amended). There are some protections under these laws that may be helpful to you and the FWA can investigate them on behalf of workers. The FWA will eventually also take on the state enforcement of holiday pay. However the FWA may not be able to help you enforce a wider employment law right or an Agency Workers Regulation right – you would probably need to go to an Employment Tribunal. You can read the FWA guidance on GOV.UK for more information. 

You should also check if the agency is a member of a membership body for recruitment agencies such as the Recruitment and Employment Confederation (REC) and the Association of Professional Staffing Companies (APSCo), as they would probably be interested to hear of any problems with their members.

Introductory agencies

An introductory agency is one that assists you to find a permanent job by matching you with a potential engager. However, it then has no further part to play in the arrangement and is not responsible for paying you after it has introduced you to a hirer. In this situation, it is for the engager you are matched with to pay you and also to decide if you are employed or self-employed and operate PAYE accordingly. 

The special tax law rule mentioned above (where the temping agency has to operate PAYE) does not apply in genuine introductory agency situations. However, just because the special tax law rule mentioned above does not apply to make the agency your deemed employer, this does not mean that you are automatically self-employed for all purposes. All it means is that the agency is not your deemed employer. The engager you are matched with may still be your employer under general principles.